19 May 2020
Trading and financing update
N Brown plc (the "Group") today provides an update on trading and amendments to its debt financing arrangements. In summary:
· Trading improved from the levels experienced in early March but continues to be affected by the Covid-19 pandemic; and
· New financing arrangements secured with its long-standing supportive lenders. These provide the Group with significantly increased and amended facilities providing sufficient liquidity, working capital headroom and covenant flexibility to be able to manage effectively in a challenging trading environment.
Trading has improved from the sudden and significant decline experienced in March with product sales down 25% in the last 6 weeks. The Board regards this performance as creditable in the circumstances and is hugely grateful for the commitment and flexibility shown by colleagues throughout the business. In the last 6 weeks, we have seen significant growth in our Home & Gift categories, up 74%, but continued weakness in apparel sales, down 48%. Within apparel, offline sales declined significantly more than digital sales.
Home & Gift sales have been supported by the launch, on 1st April, of our standalone Home brand, Home Essentials, and we look forward to providing more detail on this in our strategic brand review at the full year results in June.
Our financial services business continues to provide consistent streams of revenue and cash inflows. Through focused operational activity and the migration of more credit customers to automated payment methods, financial services cash collections have performed well and are broadly in line with the prior year. Following FCA guidance, on 14th April we offered customers in financial difficulty as a result of Covid-19 the option to defer payments for 3 months. Consequently, we expect cash collections to trend lower over the coming months. However, as a result of the flexibility provided by our new debt financing arrangements, our ability to draw on our securitisation facility will be stabilised despite a lower cash collection rate environment than previously.
The Group has taken decisive action to maximise operating efficiency and preserve liquidity and has successfully achieved the following:
· Continued operation of our distribution centres, though at lower levels of capacity than normal;
· An 80% reduction in marketing expenditure;
· A significant reduction in capital expenditure;
· The furloughing of 30% of colleagues across the business;
· Recruitment and salary freezes;
· Voluntary pay reductions from April to June for PLC Board, Management Board and senior leadership team; and
· Agreement with HMRC to defer certain tax and duty payments associated with our normal operating activities as well as certain legacy tax payments which were expected to be paid in H1 FY21.
Financing arrangements and liquidity update
The Group has financing facilities in place, comprising:
· An up to £500 million securitisation facility, secured by a charge over eligible customer receivables without recourse to the Group's other assets, drawings on which are linked to prevailing levels of eligible receivables;
· A Revolving Credit Facility ("RCF") of £125 million; and
· An overdraft facility of £27.5 million.
As at 18th May 2020, drawings under the securitisation facility and RCF stood at £512.0 million. As at the same date cash balances stood at £45.3 million and the overdraft facility was undrawn.
Today, the Group is pleased to announce new financing arrangements with its long-standing, supportive lenders:
· A new up to £50 million 3-year Term Loan facility, provided by our lenders under the Government's Coronavirus Large Business Interruption Loan Scheme ("CLBILS");
· Amendment of certain terms and covenants of the securitisation facility, to mitigate a significant amount of the impact that Covid-19 may have in 2020 on the facility. This is to address variations in collection rates and customer behaviour, and to enable the Group to continue to offer its customers enhanced flexibility. The amendments to the facility are in place until late December 2020 and are intended to fully cover the impact of the current period of the FCA's Covid-19 forbearance; and
· The widening of certain covenants at the August 2020 half-year test date in its existing unsecured £125 million RCF and the introduction of quarterly covenant tests.
The RCF and the securitisation facility are committed until September 2021 and December 2021 respectively. The Group expects to renegotiate these facilities well in advance of these dates.
The Group has modelled various scenarios, including a "severe but plausible" scenario assuming:
· Product sales down 50% year on year in April, May and June;
· Product sales down 45% in July and August and 25% to 30% down for the remainder of the 2021 financial year; and
· Collections 15% to 20% lower than we are currently experiencing, throughout the remainder of the 2021 financial year.
Under these scenarios the new financing arrangements provide the Group with a strong basis from which to continue to service its customers and to manage appropriately the challenges faced by the Group. For as long as the £50 million CLBILS facilities remain in place, the Group will be restricted from paying cash dividends. The Board does not anticipate declaring cash dividends in respect of the 2021 financial year.
Operational actions to protect our business and stakeholders
Our priority through the crisis has been to protect the health, safety and wellbeing of our colleagues and customers. Since the outbreak of Covid-19 we have managed to keep a continuous supply of goods to our customers, whilst at all times keeping colleagues safe in our distribution centres, operating at all times in line with Government guidelines.
In March and April, we made several changes to ensure continuing safe operations and to follow the Public Health England guidelines on social distancing. At our distribution centres, we re-organised the floorplan layouts to ensure social distancing, introduced one-way walkways, increased points of access and exit, staggered the entry and exit times of colleagues and laid out clear floor markings. We also significantly expanded our cleaning regime and introduced additional hand washing stations for all colleagues. We are in regular dialogue with USDAW, our trade union, with which we are working to maintain satisfactory health and safety conditions for our colleagues. Following publication of the guidelines for workplaces on 11th May 2020, we will be incorporating recommended practices and publishing our risk assessment.
Throughout the pandemic we have worked collaboratively with all of our suppliers. We continue to pay our product suppliers to contractual terms but have cancelled some orders due for SS20 given the uncertain demand backdrop. Future orders for AW20 have been rephased and, in some cases suppliers are reworking pre-ordered fabrics for more appropriate seasonal lines. In recent weeks we have started to work with suppliers on SS21 orders. We have continued to pay all other suppliers and partners to terms.
Supporting our community
Since the beginning of the Covid-19 outbreak we have supported both our local communities affected by the crisis and those who are working tirelessly on the frontline. We have made donations of clothing and household items to frontline NHS staff in Manchester and donated face masks and face shields to a local care home near to our distribution centre in Oldham. Donations of clothing have also been made to a local charity supporting vulnerable people and children within the local community.
Preliminary results for the year ended 29th February 2020
The Group's audit is being conducted on an entirely remote basis and N Brown currently expects to release its results for the year ended 29th February 2020 in mid to end June 2020. A further announcement will be made in due course.
Given the uncertainty generated by the continually-evolving Covid-19 pandemic, the Board does not believe it is appropriate at this stage to provide any guidance for the financial year ending 27th February 2021.
Steve Johnson, CEO, said:
"In what remains a very uncertain environment, we have been balancing our number one priority of looking after our colleagues, with a commitment to continue serving our loyal customers, whilst ensuring the business has the resilience to navigate the various challenges we are facing.
"Our colleagues and suppliers have shown fantastic dedication and demonstrated real agility amidst difficult conditions, and I am extremely grateful for their hard work.
"We are pleased to have secured support from both our banking partners and the Government's loan scheme, which help to strengthen our financial position and gives us the flexibility and certainty to manage through this challenging period. In addition, the immediate and substantive actions we took at the very outset of this crisis have supported our working capital positively in this period.
"We have a unique portfolio of brands and products which appeal to a range of customer groups who can also benefit from our flexible payment options. As we further develop and improve our offer, we remain confident in the long-term prospects for the business as we emerge from these challenging times."
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.
For further information:
N Brown Group
Will MacLaren, Director of Investor Relations and Corporate Communications
07557 014 657
Andrew Jaques / Simon Hockridge / James Midmer
07709 496 125 / 07824 142 725
About N Brown Group:
N Brown is a top 10 UK clothing & footwear digital retailer. We are size inclusive, focusing on the needs of underserved customer groups - size 20+ and age 50+. We offer an extensive range of products, predominantly clothing, footwear and homewares, and our financial services proposition allows customers to spread the cost of shopping with us. We are headquartered in Manchester where we design, source and create our product offer and we employ over 2,200 people across the UK.
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